COLUMN-China may lose pole position as copper price driver: Russell

--Clyde Russell is a Reuters columnist. The views expressed
are his own.--

By Clyde Russell

LAUNCESTON, Australia, Aug 27 China has in
recent years been viewed as the main driver of the global copper
market, and while its influence remains strong, it's possible
that the rest of the world will take over in the short term.

Copper is currently one of the more divisive commodities
among analysts, with opinions split over whether the industrial
metal will continue its recent rally or lose ground over the
rest of 2014.

The point is that considerable uncertainty exists over
copper's direction and much of that comes down to whatever view
is held about the economic outlook for China, which consumes
roughly 45 percent of the world's copper.

While this is obviously a huge chunk of the market, it still
means that the other 55 percent could exert a bigger influence,
especially if its demand trend is changing.

London copper prices gained 3.4 percent between Aug.
14 and Tuesday's close of $7,054 a tonne, although they are
still down 4.2 percent since the start of the year.

The recent gains have largely been attributed to an
improving outlook for growth in the United States and hopes that
Europe may take steps to stimulate its struggling economies.

However, Chinese copper prices have also been rising, with
the most traded Shanghai contract gaining 4.5 percent
since Aug. 15 to close at 50,620 yuan ($8,230) a tonne on
Tuesday.

Both London and Shanghai copper have posted strong gains
since their 2014 lows of mid-March, jumping 10 percent and 16.7
percent respectively.

Part of this is due to the improving global economic
backdrop plus expectations of a Chinese industrial recovery in
the second half, but it may also be related to a sharp fall in
reported inventories, both in London Metal Exchange (LME) and
Shanghai Futures Exchange (SHFE) warehouses.

LME inventories MCUSTX-TOTAL dropped to a seven-year low
of 141,275 tonnes in the week to Aug. 15, while SHFE stocks
CU-STX-SGH dropped to 75,529 tonnes in the week to June 20,
the lowest since December 2011.

While inventories at both exchanges have recovered slightly
from those lows, they remain well below recent peaks.

The International Copper Study Group, in its latest report
on Aug. 20, estimated a global deficit of refined copper of
466,000 tonnes in the first five months of this year, compared
to a surplus of 251,000 tonnes in the same period in 2013.

It said global copper consumption was up 15.5 percent in the
period, led by a 29 percent jump in apparent demand in China.

THINGS TO HATE ABOUT COPPER

Copper bears, however, point to a range of factors that they
expect to act as a drag on demand for the red metal over the
short to medium term.

In Macquarie Bank's Aug. 4 report "10 things we hate about
copper in 2H14", five were related to China, with top billing
going to the slowdown in housing construction.

An increase in Chinese smelter output was another reason
cited by both Macquarie and an Aug. 14 report from Goldman
Sachs.

This is likely to cut Chinese import demand for refined
copper for the rest of the year, lowering the 28 percent growth
seen in the seven months to July over the same period in 2013.

However, it should mean that imports of copper ores and
scrap increase to feed the increased smelting capacity. In other
words, increased Chinese output of refined copper is only
bearish for prices if it isn't matched by decreased output
elsewhere.

Rising production of refined copper in China may actually
result in higher prices for ores and concentrates, and may help
to soak up expected higher mine output in the second half as
Indonesian exports resume following a deal between the
government and major producer Freeport-McMoRan.

Newmont Mining Corp may also be edging towards a
deal with Indonesia so that it can start exporting again.

It is likely that slower housing construction will be a drag
on Chinese copper demand, but this may be a temporary situation
as signs emerge that many Chinese cities are starting to ease
property curbs in a bid to stimulate the sector.

Whether it's a good idea to re-inflate the Chinese property
market is questionable, but it appears likely that copper demand
from housing won't be as dire as many fear.

There also remains a question mark over the so-called dark
inventories of copper in China, those that sit outside the SHFE
system and are largely tied to commodity financing deals.

The multi-pledging of metals at Qingdao port has led to
fears of a crackdown on commodity financing and several Western
banks have expressed caution.

But so far there appears little real evidence of these
unmonitored inventories hitting the market in greater than usual
quantities, so this remains a risk, not a reality.

The base case for Chinese copper demand remains one of
modest growth, but with slower growth in refined imports as the
country ramps up smelting capacity.

That should result in more metal flowing into LME
warehouses.

The question then becomes whether that flow will outweigh
rising demand in the rest of the world, in which case prices
will struggle to rally.

Or it could be that global demand ex-China improves enough
to absorb the refined copper that may not be imported by China
in the second half of the year.

It seems that monitoring demand in the rest of the world may
be more important than looking at China's copper consumption in
the short to medium term.

NEW YORK, Dec 9 A Gabonese man who prosecutors
say acted as a "fixer" for a joint-venture involving the hedge
fund Och-Ziff Capital Management Group LLC pleaded
guilty on Friday to U.S. charges that he engaged in a foreign
bribery scheme.

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